This article was published by The McAlvany Intelligence Advisor on Monday, July 17, 2017:
After serving in the House as a Republican representative from Michigan, David Stockman served as President Ronald Reagan’s OMB director from January 1981 until he quit 4½ years later in frustration. He got half of Reaganomics passed – the tax reduction part. He failed in getting the other half passed – the government spending cut part.
Mick Mulvaney is now Trump’s OMB Director after serving in the House as a Republican from South Carolina. And his job is likely to be as difficult and frustrating as was Stockman’s.
It’s far too soon to speculate about Mulvaney. He’s taking to the editorial pages of the Wall Street Journal to begin his assault on Capitol Hill. And the very first thing Mulvaney did was throttle back on Trump’s promises to reignite the moribund Obama economy with four percent growth. On the campaign trail Trump repeatedly promised four percent growth in the GDP (gross domestic product): “We’re bringing it from 1 percent up to 4 percent. And I actually think we can go higher than 4 percent. I think you can go to 5 percent or 6 percent.” (October, 2016). Later that month he doubled down during a speech to an audience in North Carolina: “I’m going to get us to 4 percent growth and create 25 million jobs of a 10-year period.”
Mulvaney’s editorial on Wednesday was unapologetic: “We are promoting MAGAnomics [Make America Great Again economics] – and that means sustained 3 percent growth.”
This new tag is a play on “Reaganomics” from the 1980s:
Ronald Reagan … steered us to a boom that many people thought was unachievable. In the 7½ years following the end of the recession in 1982, real GDP [the country’s gross economic output adjusted for inflation] grew at an annual rate of 4.4%. That is what a recovery looks like, and what the American economy is still capable of achieving.
He rolled out everything he wants from Congress:
Tax reform: “We need to boost productivity. Fundamental to that is encouraging capital investment.” That will require “lower tax rates and faster cost recovery.” Translation: lower taxes on corporations and accelerated write-offs of their capital investments.
Cutting regulations: “Rolling back unnecessarily burdensome regulation will reduce the cost of doing business. When regulations increase costs, they decrease returns … [and] discourage any investment at all.”
Welfare reform: “Growth also depends on the size of the workforce … we need to reform welfare to ensure [that] it helps those truly in need of it, but does not encourage people to stay home.”
Energy: “The president’s ‘all-of-the-above’ energy strategy expands the economy’s growth potential … cheaper, cleaner, more abundant energy will … increase investment and employment across dozens of industries, from chemicals to automobiles.”
Rebuild infrastructure: “Rebuild[ing] America’s infrastructure will create immediate job opportunities … [and] boost the long-term productivity of American industry.”
Fair trade: “Ensuring that other nations do not undermine our economy … is essential to our economic future.”
Restraining government spending: “We will watch every dollar to minimize waste. We will, in short, seek to take from you only what government actually needs to function.” Volumes have been written about government spending reaching far beyond Constitutional restraints with John F. McManus, the president-emeritus of the John Birch Society, estimating that federal spending would be 20 percent of its current budget if it stayed within its Constitutional boundaries.
He targeted Congress: “If we [that is to say, they] enact the president’s broad agenda – if MAGAnomics is allowed to work – we will have set the stage for the greatest revival of the American economy since the early 1980s.”
Two days later Mulvaney announced that his office’s original estimate of the federal deficit was too low – by $99 billion – thanks to revenue shortfalls. He used the opportunity once again to target Congress: “The rising near-term deficits underscore the critical need to restore fiscal discipline to the nation’s finances.”
The Congressional Budget Office (CBO) – far less political and partisan than the OMB – says that Mulvaney is way overestimating the impact of MAGAnomics. It projected annual deficits into the foreseeable future as compared to Mulvaney’s initial conclusion that the federal budget would be balanced in less than 10 years. As the CBO explained:
The projected rise in [annual] deficits would be the result of rapid growth in spending for federal retirement and health care programs targeted to older people, and to rising interest payments on the government’s debt, accompanied by only moderate growth in revenue collections…
[Our] estimate of the shortfall for 2017 has increased since January — largely as a result of tax collections that have been weaker than expected — as has [our] projection of the cumulative deficit over [the next ten years].
Instead of 4 percent, or 3 percent, or even 2 percent growth, the CBO projects that the economy will grow in the foreseeable future at just 1.9 percent, with the caveat that it could fall even lower as interest costs increase along with the national debt. And the CBO built in nothing about a recession occurring in the future – a recession that is already overdue.
Stockman faced Democrat House Speaker Tip O’Neill in the House and Howard Baker’s Republican-controlled Senate. Stockman became known for his feisty confrontations as he finally was able to get The Gramm-Lotta budget bill passed. But he quit after Reagan broke his promise and voted for a tax increase. Stockman wrote “The Triumph of Politics: Why the Reagan Revolution Failed” in which he castigated RINOs in both houses for not passing spending cuts.
Is there a lesson there for Mulvaney?
The Wall Street Journal: Mulvaney’s editorial Introducing MAGAnomics
News.Vice.com: R.I.P. Trump’s promise to grow the economy by 4% a year